Sharp-Hon Hai Deadline Lapses But Talks Continue

By Bradford Frischkorn and Isabella Steger

Agence France-Presse/Getty Images

A customer looks at LCD television sets by Japanese electronics maker Sharp at an electronics shop in Tokyo on March 6, 2013.

A year later, Japan’s Sharp Corp. is still in talks with Taiwan’s Hon Hai Precision Industry Co. over a capital injection, after missing Tuesday’s deadline to seal an agreement reached in March last year.

Sharp shares are off more than 3% in Tokyo on Wednesday after Sharp said Tuesday that the two companies had failed to reach an agreement by the deadline to complete its purchase of a 9.9% stake in the troubled electronics company.

Hon Hai shares are flat in Taipei.

“No deal is a good deal” for Hon Hai, Daiwa Capital Markets said in a note, questioning the wisdom of Hon Hai moving away from supplying parts to electronics companies toward “[running] a brand company with a long history.”

For Sharp, which faces a fall deadline to redeem convertible bonds, the fallout from the news wasn’t as painful as it could have been.

“The news is not that much of a surprise, as a lot of the negativity surrounding the apparently rocky Hon Hai talks had already been priced in,” Monex market analyst Toshiyuki Kanayama said.

Still, Hon Hai said it remains in talks with Sharp over revising the terms of the deal.

Hon Hai had agreed to inject around 66.9 billion yen ($707 million) in Sharp in March last year. But Sharp’s share price plunged in the months following, causing Hon Hai to back out of the original agreement in August and seek new terms.

Meanwhile, Sharp is left with few funding choices, Mr. Kanayama said.

“It can’t issue stock publicly and can’t float bonds, leaving it with mostly only bank loans to rely upon,” he said. “While I think Sharp is unlikely to fail outright, it may become increasingly beholden to its creditors, who would then make the critical resource and personnel decisions needed to keep the company afloat.”

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